Thinking About a Short Sale?

Thinking About A Short Sale?
There are many ways to lose a home but signing away ownership in a manner that destroys credit,
embarrasses the family and strips an owner of dignity is one of the hardest. For owners who can no
longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure
proceedings. One of those options is called a "short sale."
When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total
amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make
more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales.
If you are considering buying a short sale, there could be drawbacks. For your protection, I suggest that
all borrowers:
* Obtain legal advice from a competent real estate lawyer
* Call an accountant to discuss short sale tax ramifications
As an agent, I am not licensed as a lawyer nor a CPA and cannot advise on those consequences. Except
for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S.
will consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short
sale will not legally pursue a borrower for the difference between the amount owed and the amount
paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan
qualifies for a deficiency judgment or claim.
Although all lenders have varying requirements and may demand that a borrower submit a wide array of
documentation, the following steps will give you a pretty good idea of what to expect.
Call the Lender
You may need to make a half dozen phone calls before you find the person responsible for handling
short sales. You do not want to talk to the "real estate short sale" or "work out" department, you want
the supervisor's name, the name of the individual capable of making a decision.
Submit Letter of Authorization
Lenders typically do not want to disclose any of your personal information without written authorization
to do so. If you are working with a real estate agent, closing agent, Title Company or lawyer, you will
receive better cooperation if you write a letter to the lender giving the lender permission to talk with
those specific interested parties about your loan. The letter should include the following:
* Property Address
* Loan Reference Number
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* Your Name
* The Date
* Your Agent's Name & Contact Information
Preliminary Net Sheet
This is an estimated closing statement that shows the sales price you expect to receive and all the costs
of sale, unpaid loan balances, outstanding payments due and late fees, including real estate
commissions, if any. Your closing agent or lawyer should be able to prepare this for you, if you do not
know how to calculate any of these fees. If the bottom line shows cash to the seller, you will probably
not need a short sale.
Hardship Letter
The sadder, the better. This statement of facts describes how you got into this financial bind and makes
a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if
you lost your job, were hospitalized or a truck ran over your entire family, but lenders are not
particularly empathetic to situations involving dishonesty or criminal behavior.
Proof of Income and Assets
It is best to be truthful and honest about your financial situation and disclose assets. Lenders will want
to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments,
cash or other real estate or anything of tangible value. Lenders are not in the charity business and often
require assurance that the debtor cannot pay back any of the debt that it is forgiving.
Copies of Bank Statements
If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of
checks, it's probably a good idea to explain each of those line items to the lender. In addition, the lender
might want you to account for each and every deposit so it can determine whether deposits will
continue.
Comparative Market Analysis
Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your
home for enough to pay off the lender, this fact should be substantiated for the lender through a
comparative market analysis (CMA). Your real estate agent can prepare a CMA for you, which will show
prices of similar homes:
*Active on the market
*Pending sales
*Sold from the past six months.
Purchase Agreement & Listing Agreement
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When you reach an agreement to sell with a prospective purchaser, the lender will
want a copy of the offer, along with a copy of your listing agreement. Be prepared for
the lender to renegotiate commissions and to refuse to allow payment of certain items
such as home protection plans or termite inspections.

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Thinking About a Short Sale?

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